The major U.S. index futures are pointing to a lower opening on Friday. After a series of benign economic readings, the personal income and outlays report that showed softness in personal income and an increase in inflation rate is likely to cast a shadow on the state of the economy. Insipid results from Dell (DELL) do not bode well for technology stocks. Additionally, the sharp rise in crude oil futures is also likely to weigh on the markets. That said, trading volumes are likely to be very light ahead of the long weekend on account of the public holiday on Monday due to 'Labor Day.' Thereafter, today's market movement is unlikely to have much significance in terms of the near to medium term direction of the markets.
U.S. stocks opened Thursday's session higher on a stronger-than-expected upward revision to second quarter GDP data. Thereafter, there was no looking back for the major averages, as they rose steadily to finish near the highs of the session. A sharp drop in oil prices, which had recently climbed amid a hurricane threat, also encouraged traders.
The Dow ended the day up 212.67 points or 1.85% to 11,715 and the S&P 500 Index rose 19.02 points or 1.48% to 1,301, while the Nasdaq Composite advanced 29.18 points or 1.22% to 2,412.
Twenty-nine of the thirty Dow components ended the session higher, with only Coca-Cola (KO) (down 1.25%) closing lower. AIG (AIG) (up 7.55%), American Express (AXP) (up 4.04%), Bank of America (BAC) (up 6%) and JPMorgan Chase (JPM) (up 4.68%) were among the notable gainers.
The Amex Securities Broker/Dealer Index and the KBW Bank Index advanced 4.01% and 4.46%, respectively. The Dow Jones Transportation Average rallied 2.56% compared to an 8.70% gain by the Amex Airline Index. Retail, housing, technology and biotechnology stocks also saw significant strength. However, the Amex Oil Index and the Philadelphia Oil Service Sector Index fell 1.17% and 0.66%, respectively.
Continuing with the string of positive economic readings, the Bureau of Economic Analysis reported yesterday that second quarter GDP growth was revised up to 3.3% due to stronger exports and less inventory reductions. The narrower trade deficit added three percentage points to GDP growth, offsetting the 1.5 percentage point deduction brought about by inventory depletion. Consumer spending growth was also revised upwards. However, economists are less sanguine about the performance in the second half of the year, as global growth that has solidly supported U.S. growth even amidst the domestic downturn is now showing signs of weakness.
Currency, Commodity Markets
Crude oil futures are rising $1.71 to $117.30 a barrel after the commodity declined $2.56 to $115.59 a barrel in Thursday's session. Meanwhile, gold futures, which rose $3.20 to $837.20 an ounce on Thursday, are currently rising $0.70 to $837.90 an ounce.
On the currency front, the U.S. dollar is trading at 108.6650 yen compared with the 109.4970 yen it fetched at the close of New York trading on Thursday. The dollar is currently valued at $1.4724 versus the euro.
Asia
Stock markets across the Asia-Pacific region closed higher on Friday after a bigger-than-expected upward revision to second quarter U.S. GDP data along with a drop in crude oil prices overnight lifted investor sentiment. The Indian market surged 3.7% and the Japanese market gained 2.4%, its bigger one-day gain in three weeks. The U.S. dollar weakened after oil climbed more than a dollar Friday as Tropical Storm Gustav headed towards the Gulf of Mexico.
The Japanese market opened higher and moved sideways for the rest of the session. The key Nikkei index closed up 304.62 points or 2.4% at 13,073, its highest close since August 18, when the index finished at 13,165. Stocks rose across the board, but steel, real estate and financial stocks were the major gainers.
A moderate rise in Japan's industrial output and the first rise in housing starts in 13 months also supported sentiment. Industrial production climbed a seasonally adjusted 0.9% in July to 107.9 from 106.9 in June, the Ministry of Economy, Trade and Industry said.
Meanwhile, the Ministry of Land, Infrastructure and Transport said that Japanese housing starts increased 19% year-over-year in July, after declining 16.7% in June. Economists were looking for a 15% rise in July. Construction orders received by big 50 contractors surged 42.3% year-on-year after falling 11.7% in June.
Among the other data released today, Japan's core inflation rate surged to an annualized pace of 2.4% in July from 1.9% in the previous month on the back of soaring energy and raw material costs, while retail sales rose 1.9% in July from a year earlier as consumers paid more for fuel and food. The unemployment rate dipped to 4.0% in July from 4.1% in the previous month.
Among steel makers, Nippon Steel surged 5.4%, JFE Holdings jumped 4.7%, Kobe Steel jumped 3.9% and Sumitomo Metal Industries advanced 3.4%. In the real estate sector, Mitsubishi Estate gained 4.3%, Mitsui Fudosan rose 3.6% and Sumitomo Realty & Development climbed 3.8%.
Game maker Nintendo closed limit-up 8.4% after the company raised its group net profit forecast for this fiscal year ending March to 410 billion yen from 325 billion yen. Retailers gained on the back of the report that retail sales rose in July. Fast Retailing gained 3.4%, Seven & I Holdings surged 4.6%, and Aeon advanced 2.3%.
The South Korean market opened higher, but it surrendered much of its early gains before finishing flat. Gains among financials and steel makers offset losses by Doosan Group. The benchmark Korea Composite Stock Price Index closed up 0.09 point or 0.01% at 1,474. The index has lost 7.6% during the month and 23% from its mid-May closing high of 1,889.
Shares in Doosan Group units fell after Doosan Infracore said Thursday that it and its affiliate will pump a combined $1 billion into companies set up to buy Ingersoll-Rand's business lines last year to pay back their debt. Nomura Securities cut its rating on Doosan Infracore to "Sell" from "Buy" on Friday. Doosan Infracore slumped by the daily 15.0% limit, Doosan Heavy Industries tumbled 15.0% and Doosan Corp plummeted 14.8%.
The Chinese market closed higher, led by property stocks, on hopes that the government will announce new measures over the weekend to support the markets. The benchmark Shanghai Composite Index closed up 47.23 points or 2.01% at 2,397. The index posted a loss of 0.33% for the week and 13.63% for the month.
The Hong Kong market gap-opened higher and moved sideways for the rest of the session. Positive first-half earnings reported by locally listed stocks added to the positive sentiment. The Hang Seng index closed up 289.6 points or 1.38% at 21,262.
Among property firms, Cheung Kong gained 2.8%, Sino Land surged 6.0% and Sun Hung Kai rose 2.3%.
Bank of China rose 2.1% after the bank reported a 42.8% jump in first-half profits, while its Hong Kong unit fell 3.3% following a 5.1% drop in first-half earnings.
CLP Holdings fell over 3.5% on fears that a new agreement for China to supply Hong Kong with natural gas will scuttle the power utility's plans to build a liquefied natural gas terminal in the city.
The Australian stock market closed higher for the third consecutive session on Friday, led by financials. The benchmark All Ordinaries index gained 72.2 points or 1.4% to finish at 5,216.
Among banks, ANZ Banking Group added 2.5%, Commonwealth Bank rose 3.2%, National Australia Bank gained 2.1%, and Westpac advanced 1.8%. St. George bank climbed 2.1% and investment bank Macquarie Group surged 4.7%. Westpac said it would take a 33% stake in mortgage broker Aussie Home Loans. Miners and retail stocks closed on a mixed note.
Europe
The major European markets are trading higher on Friday. The French CAC 40 Index and the German DAX Index are rising 0.39% and 0.02%, respectively, while the U.K.'s FTSE 100 Index is advancing 0.38%.
A flash estimate released by Eurostat showed that the euro area's inflation is expected to be 3.8% in August. This represents a pullback from the July rate of 4%. Economists expected an inflation rate of 3.9% for the month.
The euro area's seasonally adjusted unemployment rate stood at 7.3% in July, another report released by Eurostat showed today. The jobless rate was unchanged from the June rate and was an improvement from the 7.4% rate in July 2007.
U.S. Economic Reports
The Bureau of Economic Analysis' personal income and spending report for July showed that personal income declined 0.7% compared to the 0.2% decline expected by economists. The July reading represented the first decline since August 2005. Meanwhile, personal consumption expenditure climbed 0.2%, in-line with economists' expectations. Personal current transfer receipts declined 6.9% in July compared with a 1% decline in June.
The spending growth slowed from the 0.6% increase in the previous month, as spending on durable goods fell 1.5%, a steeper decline than the 1.3% drop witnessed in June. Spending on non-durable goods increased at a slower rate of 0.3%. The core Personal Consumption Expenditure Index rose 2.4% year-over-year, up 2.3% in the previous month, marking the biggest increase since February 2007.
The results of the National Association of Purchasing Management-Chicago's business survey for August are scheduled to be released at 9:45 AM ET on Friday. Economists expect the business barometer index based on the survey to come in at 50.
In July, manufacturing activity in the region expanded. The business barometer index rose to 50.8 in July from 49.6 in June. The new orders index climbed 1.5 points to 53.5. However, on a very worrisome note, the prices paid index rose 5.2 points to 90.7 and the employment index eased 0.8 points to 45.9.
The final reading of the University of Michigan's consumer sentiment index for August is due to be released at 10 AM ET on Friday. The report is likely to show a reading of 62, higher than the mid-month reading of 61.7.
Stocks in Focus
Dell (DELL) may trade lower after it reported that its second quarter earnings declined to 31 cents per share from 32 cents per share in the year-ago period. On an adjusted basis, the company's earnings were 33 cents per share, missing the consensus estimate of 36 cents per share. Sales rose 11% to $16.4 billion, missing the mean analysts' estimate of $15.95 billion.
Campbell Soup (CPB) receded modestly in Thursday's after hours session after it announced that it is appointing Craig Owens, who served as the CFO of Delhaize Group (DEG), as its Senior VP, CFO and Chief Administrative Officer.
Fortune Brands (FO) is likely to be in focus after French brewer Pernod Ricard announced that it will stall the distribution agreement with Future Brands of Absolut and other Vin & Spirit brands in the U.S. The distribution agreement was originally scheduled to end on February 2012. Based on the new agreement, Pernod Ricard will pay $230 million on a pre-tax basis to Fortune Brands and will sell the Cruzan rum brand and related assets to Fortune Brands for $100 million.
Marvell Technology (MRVL) receded in Thursday's after hours session despite reporting second quarter earnings that increased to 11 cents per share from 10 cents per share in the year-ago period, as sales rose 28% to $842.6 million. On an adjusted basis, the company reported earnings of 24 cents per share. Analysts, on average, estimated earnings of 21 cents per share on revenues of $834 million.
Novell (NOVL) is likely to recede after it reported a third quarter loss of 4 cents per share compared to a loss of 1 cent per share in the year-ago period. Revenues rose 3.5% to $245 million. On an adjusted basis, the company reported earnings of 6 cents per share. The consensus estimates had called for earnings of 5 cents per share on revenues of $241.4 million.
PetSmart (PETM) may see some strength after it reiterated its full year earnings estimate of $1.51-$1.59 per share. The company expects sales growth in the high single digits to low double digits. The company also reported second quarter earnings of 30 cents per share compared to 35 cents per share last, even as sales rose 11.2% to $1.2 billion. Analysts estimated earnings of 28 cents per share on revenues of $1.2 billion.
For comments and feedback: editorial@rttnews.com